Can the country become a top international gambling destination and boost investment from the industry?
Cambodia.- In spite of the pandemic and recent changes in regulation, the future of gaming companies still seems promising in Cambodia.
With a new legal framework to offer certainty and tax rates that remain among the lowest in the region, experts believe it still has much in its favour.
Of course, the shut-down of online operations has been a tough blow. In August 2019 the Kingdoms’ government opted not to renew online gaming licences as of January of the current year, and many casinos supported by online operations have had to shut down.
With the new restrictions on online gaming and reduced visitation owing to the pandemic, it’s been reported that 30 casinos in Sihanoukville have closed or suspended staff, while another 33 have announced temporary suspensions.
Michael Zhu, senior vice president of international operations planning and analysis at The Innovation Group said: “The business was booming and doing really well. But the Cambodian government had some pressures, essentially from the Chinese government, and decided to shut it down.
“Right after the ban, a lot of the companies moved to the Philippines, where it is legal to run online gambling operations and target what they call offshore clients, in mainland China or Hong Kong for example.”
Andrew Klebanow, principal at Klebanow Consulting said that most brick and mortar casinos remained, including NagaWorld along with 14 casinos in Poipet and 12 in Bavet.
Many venues in Sihanoukville have shut down, and those that are still open, including venues within hotels, have been hit hard by the reduction in air traffic into Phnom Penh and Sihanoukville.
But it’s not all bad news. NagaCorp, the largest operator in Phnom Penh, said its mass gaming volumes for August-September recovered to about 97 per cent of the average seen in the first quarter of 2020 before the closure of the casino in April. This suggests a recovery could take less time than in other regions.
Zhu said it showed the operator’s strength. “The majority of their business is VIP, mainly from China,” he said. “Even before the travelling restrictions are lifted, NagaWorld has almost recovered. This is because, on the one hand, there are expats from China living in Phnom Penh, and number two, they have many VIP players who usually travel in groups and get business visas or permits.”
Gambling is forbidden for Cambodian nationals, so casinos are open to foreigners only. Only a handful have reopened after lockdown measures were lifted in early July since they must first obtain permission from the Ministry of Health.
New obligations and taxes
The latest development has been Cambodia’ new gaming law, which was passed by the National Assembly in August.
This new legislation made casino reporting entities for the prevention of money laundering and terrorism financing, established a minimum capital for casino investments and added a new 7 per cent tax on gross gaming revenue (GGR) and a 4 per cent tax on VIP revenues.
That means quite a tax hike for companies already operating in the kingdom, but Zhu points out that Asia is becoming more expensive and that the Cambodian rate is still lower than Macau’s, Singapore’s and Australia’s, and lower than the rate future casinos will have to pay in Japan.
Once the law is signed, new casinos will have to be at least 200 kilometres away from Phnom Penh and a new regulatory body will be created to oversee the sector.
When asked about the potential effect the new law might have on gaming companies, Klebanow doesn’t expect any dramatic changes in the near term.
He said: “Once it is signed into law, there will be a period where the new gaming commission is formed, and the regulations will have to be promulgated.”
The question remains, will the new legal framework and tax requisites work to attract investments into Cambodia’s gaming industry?
Klebanow is confident. “I suspect that international operators are already scouting potentially distressed properties or looking at land for new developments,” he said.
“Eventually, probably within 24 months, you will hear announcements of international operators unveiling new projects, similar to Golden Sun Sky in Sihanoukville.”
Golden Sun Sku is a new hotel and casino that will be operated by Suncity Group)
Zhu believes the law is positive as it specifies the tax and the legality of casino gaming in Cambodia.
He said: “Locals are not allowed to gamble, so this was a grey area. Now there’s a clear framework to measure the market. There’s less uncertainty, so it could be good to attract investments.”
A safe place
It was not long ago that the landscape for gaming companies in Cambodia looked very different.
World Poker Tour chose the country to reintroduce its tournaments to the Asia Pacific region, holding one of its main events at the NagaWorld Integrated Resort in Phnom Penh last November.
WPTDeepStacks Director, Cathy Zhao, told Focus GN Asia Pacific that at the time Cambodia was chosen for being one of a few select countries in Asia-Pacific with both “a great poker scene and an amazing venue.” She added: “The record-breaking event last year also proved the potential there.”
When asked if recent geopolitical tensions and China’s crusade against the outflow of funds for gambling affected business, the executive said: “The participants of our past tournament in Cambodia were from all over the Asia-Pacific region. Similar to any other live event. Our greater concern is the safety of all players.”
A new WPT event is set to take place in Cambodia in May 2021, although the company continues to monitor the pandemic situation. So far, Zhao said they plan to bring the WPTDeepStacks event back to NagaWorld and to host the Main Tour event when the circumstances allow.
Klebanow also mentioned Cambodia as “a safe place” in the dispute between China and the US. “It remains a country that is economically challenged and it is not in China or in the US’s best interests to hinder the growth of the economy,” he said.
Zhu agreed: “Cambodia is probably one of the few beneficiaries from these tensions between the US and China. The government has been really abiding by what Beijing says. Now the Chinese government is trying to criminalize the promotion of gambling overseas. But there are exceptions like Macau. Cambodia will probably be the number two exception.”
Authorities in the neighbouring country are already cracking down on VIP money transferences and have promised to issue a blacklist of gambling destinations.
The move is the latest chapter in China’s crusade to control capital outflows since it identified the cross-border flow of funds for gambling as a national security risk and potential channel for money laundering. But Zhu believes it is very likely that Cambodia will be excluded from the blacklist.
Experts agree that Cambodia may be one of the gaming areas to be spared from China’s anti-gaming efforts. Klebanow points out that, unlike the Philippines, Cambodia shut down its online gambling industry at China’s request, and so it may be left off the blacklist.
As for China’s clampdown on VIP funds, that’s another story. The analyst said: “With the exception of NagaWorld, I have not heard of any casinos restarting their VIP programs.”
The Principal at Klebanow Consulting also sees changes in the post-pandemic future of Cambodia. He said: “I anticipate that there will be a period of consolidation. There were a lot of entrepreneurs that entered the market for opportunistic reasons, particularly the rush to offer online gambling. They are now sitting on non-performing assets.”
He believes the gaming industry’s recovery will depend on “how quickly Chinese tourists return” for the case of Sihanoukville, and on whether the borders with Vietnam and Thailand reopen for tourists for Bavet and Poipet.
Zhu believes that having a solid framework “was a healthy move” as the market gets bigger and investments can come in. He told Focus GN Asia Pacific: “There’s an understanding that this is going to secure the long-term growth of the industry”.
He said that while it was likely that the number of licences and casinos will be reduced due to online operations not being allowed, “from the point of view of the quality and scale of the casinos and resorts, I believe it will be much better.”
He believes there will be large resorts with a few hundred hotel rooms, although not as big as in Macau since Cambodia still has a large part of the population below the poverty line.
He said: “But Cambodia and Sihanoukville, being a coastal city, have the infrastructure, the natural beauty and the potential to become an international gaming destination.”